Oil Subsidy Removal And National Development

Project and Seminar Material for Political Science

Oil Subsidy Removal And National Development


Abstract


This study is on the oil subsidy removal and national development. The total population for the study is 200 staff of NNPC, Abuja. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made human resource managers, client managers, marketers and junior staffs were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies


Chapter One


Introduction

1.1 Background of the Study

Subsidy has been defined as aids directly granted by government to an individual or private commercial enterprise deemed beneficial to the public. It is also a grant or gift of money from a government to a private company, organization, or charity to help it function.In relation to oil in Nigeria, it means the financial aid granted to autonomous and foremost oil marketers by the government for them to supply their products at a cheaper rate for the good of the masses. This move is almost always aimed at boosting the economy of a country, providing social amenities for the people, stabilizing the market, creating employment opportunities and of course the assumption by the government that it is capable of fighting corruption. The Nigeria Extractive Industries Transparency Initiative (NEITI, 2011) notes that the issue of subsidy is not alien to the nation’s blood stream because it existed during the military regime when the four refineries of the nation could only produce little which could not even satisfy the domestic needs of the people.Subsidy, in economic sense, exists when consumers of a given commodity are assisted by the government to pay less than the prevailing market price. In relation to oil subsidy, it means that consumers would pay less than the pump price per litre of products.

More so, oil subsidy could be described as the difference between the actual market price of oil products per litre and what the final consumers pay for those same products. Indeed, developing countries have used petroleum products or fuel subsidies for consumers primarily as a means of achieving certain social, economic, and environmental objectives, as identified by Bazilian and Onyeji, (2012). These include alleviating energy poverty and improving equity, increasing domestic supply, national resource wealth redistribution, correction of externalities and controlling inflation. Subsidies were introduced in the Nigerian petroleum sector in the mid 1980’s. Something of a creeping phenomenon, the value of the subsidies has gone from 1 billion Naira in the 1980s to an expected 6 billion Dollars in 2011. Nigeria is a country endowed with vast mineral resources prominent among which are the oil and gas reserves. The country possesses 28% of Africa’s proven oil reserves, second only to Libya; and is the largest producer of crude oil in the region, producing 2.4 million barrels per day in 2010 which is about 24% of the continent’s petroleum (Siddig, et al, 2013). In addition, Nigeria has four refineries with an installed production capacity of 445,000 barrels of fuel per day, adequate to meet its domestic needs with a surplus for export (Explore, 2011). However, Nigeria is a large net importer of fuel and other petroleum products. In spite of efforts to revamp her economy via various reforms, which includes comprehensive non-oil export diversification initiatives, petroleum still contributes an average of 95% of the nation’s external earnings (Majekodunmi, 2013). The country increasingly relies on imported petroleum products because the existing refineries are producing below 20% of their installed capacity. In fact, the cost of importing petroleum products has risen so rapidly in recent years that the country’s capital expenditures and balance of payment are under threat (Adelabu, 2012).

According to Majekodunmi (2013), for five decades now, Nigeria’s economic growth and other related activities, (including living standards) have largely been influenced by the oil industry. The view that the economy is heavily dependent on the oil industry will amount to an understatement as the oil industry is nothing short of the life-blood of the Nigerianeconomy (Adelabu, 2012). The International Monetary Fund (IMF, 2013) indicates that Nigeria is the largest oil producing country in Africa and the sixth in the world. The country’s economic strength is derived largely from its oil and gas wealth, which contributes about 99 percent of government revenues and 38.8 percent of GDP (National Budget, 2010). Despitethese positive developments, successive governments in Nigeria have been unable to use the oil resources to significantly reduce poverty, provide basic social and economic services for her citizens (Ering and Akpan, 2012).Fuel subsidy was, before the coming of the Goodluck Jonathan’s administration, a policy of the federal government meant to assist the people of Nigeria to cushion the effects of economic hardship. However, the controversy over the removal of fuel subsidy was sparked off in June 2011 at the instance of Nigeria Governors’ Forum, which includes governors of the 36 federating states in Nigeria. The Forum visited President Jonathan in the wake of the national debate over the payment of the new N18,000 minimum wage. The governors pleaded their inability to pay the new wage bill and suggested the removal of fuel subsidy to ensure that more money accrues to the Federation Account, which will in turn be shared among the three tiers being federal, state and local governments. Nevertheless, the Chairman of the Forum, Governor Chubuike Amaechi of Rivers State later stated that contrary to the prevailing notion that the Governors’ support for the removal of fuel subsidy is hinged on their inability to pay the new minimum wage, they wanted it removed because only a few people were benefitting from the subsidies. He added that “with billions spent on fuel importation and we are not seeing the fuel, refineries are not in place … if we remove the subsidy, then people will establish refineries … the refineries will employ people and make fuel available (Social Action 2013:1).

The debate over subsidies was further fuelled on the 4 of October 2011 when President Goodluck Jonathan forwarded to the National Assembly [Senate and House of Representatives] the 2012-2015 Medium Term Expenditure Framework, and the 2012 Fiscal Strategy Paper. Among other issues, the documents proposed to phase out subsidy on fuel beginning in 2012. According to the President, this will make available about N1.2 trillion – some of which will be available for use in creating safety nets for the poor who will be adversely affected by the removal of the subsidy, and also go into the establishment of ‘critical infrastructure’.Fuel subsidy removal, which the federal government has effectively canvassed and lobbied for since May 29, 2011 appear to finally take off on December 12, 2011. This is when the National Economic Council (NEC) headed by Vice President Namadi Sambo decided that the government should finally remove the subsidy from January 2012. By January 2012, there were revelations that amount expended on fuel subsidies in 2011 was much higher than what the government was keen to admit. While it has been estimated that government expenditure for this purpose was about N561 billion in 2010, the figure, at least, tripled in 2011 though there was no substantial increase in fuel consumption between the periods. On May, 2016 president Buhari announce the removal of fuel subsidy that making the price to #145 till date. An interesting matter from the economy is the issue of fuel subsidy removal, which has been a great controversy for Nigerians. The issue of fuel subsidy removal has been on in Nigeria for some decades of which different governments have tried to implement the reform but were unsuccessful due to fierce public demonstration of disapproval. This has often led to mass protests by the citizens and the civil society who regard such policy as a measure to further subjugate and impoverish the masses. Notwithstanding, it seems that the longer the subsidies have existed, the more entrenched the opposition to reduce them. To this end, itaims to determine if the incremental increases in the pump price of fuel undermine the living standard of Nigerians. More so, the study seeks to establish if the fuel subsidy probe has improved national revenue accounting. Finally, the research will determine if mass protests that accompany fuel price increases undermine the economic stability of Nigeria.


1.2 Statement of the Problem

Nigerians did not embrace the new policy of fuel subsidy removal by the federal government. On 1st of January 2012 when President Ebele Goodluck Jonathan announced the fuel subsidy removal. Nigerians reacted negatively towards such policy. The Nigerian labour congress and government workers went on strike which made the nation (Nigeria) to lose a huge amount of money close to #100 billion naira. Emeh (2012).

The removal of fuel subsidy by the federal government also generated inflation in the country which bought about a high cost of fuel and other items in the market, not only did it bring about inflation, it was also accompanied with mass poverty because the price of goods and services increased while the income of people still remained constant. Nigerians were also traumatized by the new of the new policy and it also brought about violent demonstrations which disorted thepeace and tranquility of the country.

It was these problems that prompted the researcher to carry a thorough research on oil subsidy removal and national development.


1.3 Objective of the Study

The objective of this study is to look into oil subsidy removal and the Nigerian economy, to achieve this, the researcher wishes

  1. To assess the rational for the removal of oil subsidy by the federal government.
  2. To assess what oil subsidy removal portend for the Nigerian economy.
  3. To assess the failure or success of the oil subsidy regime.
  4. To ascertain the relationship between oil subsidy removal and national development

1.4 Research Hypotheses

For the successful completion of the study, the following research hypotheses were formulated by the researcher;

  1. H0: there is norational for the removal of oil subsidy by the federal government.
    H1: there is rational for the removal of oil subsidy by the federal government.
  2. H02: there is no relationship between oil subsidy removal and national development
    H2: there is relationship between oil subsidy removal and national development

1.5 Significance of the Study

The findings of this study will be very useful to the government and stakeholders to be able to adopt a bottom-up approach to that will be beneficial to Nigeria both the ordinary masses and the elites. The result of the study will also be useful to Nigerian citizens as they will comprehend and be enlightened on the use fullness or other wise of fuel subsidy removal. The finding will also be useful to students, staff and researchers looking for reference materials on fuel subsidy(removal). The public, private sectors and public affair analyst will learn a lot from the findings and recommendations made in this work


1.6 Scope and Limitation of the Study

The scope of the study covers oil subsidy removal and national development. The researcher encounters some constrain which limited the scope of the study;

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Organizational Privacy:

Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.


1.7 Definition of Terms

Fuel subsidy

The amount of money that the government pay to the cabalsor fuel importers while importing fuel so the price of fuel will be cheaper for the people to purchase

Removal

Elimination, withdrawal or taking away

Nigerian Economy

The wealth, resources financial system of Nigeria

Subsidy

Any measure that keep prices consumer pay for a good or produce below market price for consumer or for producer


1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  1. Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  2. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  3. Chapter three deals on the research design and methodology adopted in the study.
  4. Chapter four concentrate on the data collection and analysis and presentation of finding.
  5. Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five


Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was on oil subsidy removal and national development. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of oil subsidy removal and national development


5.2 Summary

This study was on oil subsidy removal and national development. Four objectives were raised which included:To assess the rational for the removal of oil subsidy by the federal government, to assess what oil subsidy removal portend for the Nigerian economy, to assess the failure or success of the oil subsidy regime, to ascertain the relationship between oil subsidy removal and national development.In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of NNPC, Abuja. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made human resource managers,client managers, marketers and junior staffs were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies


5.3 Conclusion

The study shows that in spite the import attached petroleum subsidy in Nigeria and the government’s argument that discontinuing the policy will enhance the living standard of the masses, the incremental increases in the pump price of fuel undermined the living standard of Nigerians. Consequently, the hypothesis that the incremental increases in the pump price of fuel undermined the living standard of Nigerians is accepted. The point that the living standards of Nigerians have remained relatively poor and static, marked by high rate of unemployment, decaying social infrastructure high mortality rates when there have been 14 upward fuel price adjustments.


5.4 Recommendation

Based on the findings, the study provides the following recommendations:

  1. The need for government agencies to keep adequate records and meet regularly to review and reconciled subsidy payments made by them
  2. In order to curb the malpractices of the marketers under the PSF scheme, the Federal Government is advised to appoint independent inspectors to undertake the inspection of product importation and storage in a bid to administer a fraud free discharge process of petroleum products.
  3. In addition, government should embark on programs that would create more jobs to ameliorate the negative effects on poor and vulnerable groups in the face of increases in pump price of fuel.
  4. Finally, the federal government should back the fuel subsidy with good agenda to ensure the success of the exercise

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